Question

Suppose that a firm in a competitive market faces the following revenues and costs:

Quantity	Total Revenue	Total Cost
0	$0	$5
1	$8	$9
2	$16	$14
3	$24	$20
4	$32	$27
5	$40	$35
6	$48	$44
7	$56	$54
8	$64	$65
9	$72	$72

If the firm’s marginal cost is $11, it should

Question 10 options:

	Increase production to maximize profit
	Increase the price of the product to maximize profit
	Advertise to attract additional buyers to maximize profit
	Reduce production to increase profit

Answer 1

option 4

Reduce production to increase profit

MC of n the unit=(TC of n units -TC of p units )/(n-p)...............n>p

TR=P*Q

MR of n th unit=(TR of n units -TR of p units)/(n-p)...................n>p

profit=TR-TC
The firm produces at MR=MC or the closet lower MC

Quantity	Total Revenue	Total Cost	MR	MC	Profit
0	0	5			-5
1	8	9	8	4	-1
2	16	14	8	5	2
3	24	20	8	6	4
4	32	27	8	7	5
5	40	35	8	8	5
6	48	44	8	9	4
7	56	54	8	10	2
8	64	65	8	11	-1
9	72	72	8	7	0

the firm maximizes profit at MC=MR

and the MR=8 and the MC at the production level is 11 so the firm should decrease the output to produce at MR=MC and maximize profit